Most individuals can contribute up to 18% of their gross income to an RRSP each year.

You are permitted to carry over any previous years unused contribution room, to maximize current year's contribution limit. When you make contributions to your RRSP now and decide to claim them on your income tax for this year's tax return, you will pay less in income taxes. This usually results in an income tax refund, which can be a pleasant surprise to your personal cash availability!

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In an RRSP, money grows tax-free until it is withdrawn. The Government of Canada recognizes RRSP contributions come from pre-tax dollars, so they levy a tax until the funds are withdrawn. Because most individuals have a lower income during retirement than they would in their working lifetime, an RRSP is a great tool to defer, and ultimately reduce, the total income taxes you pay over your lifetime.

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How much the RRSP will reduce your taxes is dependent on what income tax bracket you’re in, as well as how much you contribute to your RRSP. The higher your income and the more money you invest in an RRSP, the lower your income taxes will be.

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You can expect to get 20% to 50% of your RRSP contributions back as an income tax refund. So if you put $1,000 in an RRSP, you’ll typically get an income tax refund of $200 to $500 because of those RRSP contributions.

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